Question

List and briefly discuss the non-price determinants supply and demand.

Answer 1

• Non price determinants of demand and supply are those determinants other than the price of a good which determines the supply and demand of goods.

The various non price determinants of demand include:

1. Income: The higher the income of people, greater is the demand for goods and vice versa.

2. Consumer expectations: If the consumers expect the prices to fall in future, they cut back consumption in present and hence the demand decreases.But if they expect the prices to rise in future, the demand for those goods increases in present.

3. Population: When the size of the population Increases, the demand also increases and when the population decreases, the demand falls.

4. Consumer taste and advertising: The more popular a good is for the customers, the greater will be its demand and vice versa.

5. Complementary goods or related goods: Complementary goods are those goods in which the increase in the demand for one good will increase the demand of its complementary goods.

6. Substitute goods or related goods: substitute goods are those goods that can be replaced with one another when their price increases.

Non - price determinants of supply are :

1. Input costs: When the cost of inputs or various factors of production increases, the supply decreases and vice versa.

2. Technology: when there is an improvement in technology, productivity of a nation increases there by increasing the supply.

3. Subsidies or government intervention: when the government intervenes in the market, production becomes more efficient and the supply Increases.

4. Taxes or government intervention: When the government imposes a tax on the producers of a good, the cost of production increases which further decreases the supply.

5. Expectations of prices: When the suppliers of the goods and services expect the prices to rise in future, they decrease the supply at present and increase the supply of goods in future.